Quote: (03-16-2012 06:45 PM)Lothario Wrote:
Here is another Questions so you can answer 2 in 1.
I have about 25 grand saved that I want to pay off towards motgage loan on my house (Interest 3.5%) and a commercial property (Interest 5.8 %).
Should I pay off the high Interest property first ?
I know you might say ur binding yourself to an illiquid asset and Mortage Interest is a Tax deduction, I feel like no kind of Interest is good Interest and hate the feeling of a Loan, Hopefully by the end of next year , I will be debt free.
your thoughts westcoast ?
Westcoast has given some good advice so far on the forum. But I strongly disagree with that last answer.
Here are some questions that will get you closer to a good answer:
How stable and reliable is your monthly income?
Why don't you like interest payments? Do you spend any time worrying about not being able to meet your mortgage payment? Or is it that you think you could be making better use of the money?
How much is left to pay on either loan? For a guy building net worth by real estate, there is a psychological win involved in getting one property free and clear and then using those funds freed up to increase the payment on the other loan.
How are those assets performing? What's the current income from the commercial property? Will it be cashflow positive any time soon? What's your outlook for capital gain in that market?
How is your net worth / portfolio divided? Is it all property, or diversified and balanced?
In general, it's a good idea to reduce all risk to the point where you can sleep easily at night.
You could argue you're "making cash" by getting a rent payment below market value. But you could also argue you're pissing away 100% of rent money each month. You're paying the owner's loan and not your own.
From looking at another thread, Lothario is in the medical field. Doctors and lawyers are some of the professions most susceptible to taking large losses when they choose high impact investments.
You need to look at psychological factors and goals in this analysis. You also need to consider cashflow that can be generated from the assets. In the case of the family home, you look at cash not spent by avoiding need to pay rent.
When building wealth, there's more than one way to do it. Westcoast's approach is just one style. And it won't be the right choice for everyone.